I recently returned from a magical trip to Sri Lanka, a lovely country where the people are as warm as the climate.

While I was out there, I took a few surfing lessons where I quickly learnt that one of the key components to protecting yourself in the water, is assessing when to jump over, or under, a wave. A snap decision that, from my very limited experience, comes down to how close the wave is to breaking – the telling sign of this seems to be whether the top of the wave started to show white water.

I realised one thing that can be relied upon is the uncertainty of the ocean, and the inability to predict exactly what the waves are going to do at any given time. 

I was reading an article in The Times yesterday about the state of the economy, and there has been rumblings of stagflation for the last few weeks, with more and more evidence suggesting we are fast arriving at that place (notwithstanding a small 0.1% decrease in predicted inflation for December announced yesterday). 

Stagflation is high inflation, low economic growth, and high unemployment – a lot of this is being pinned on the recent budget, and deicsions made by Rachel Reeves as part of that. Much focus and attention is being put on the increase in minimum wage and the rise in Employer National Insurance contributions, with two thirds (67%) of retailers recently surveyed by the British Retail Consortium (BRC) stating they will be passing the costs onto the customer in order to survive.

Some 70% said they were "pessimistic" or "very pessimistic" about trading conditions over the coming 12 months, while just 13% said they were "optimistic" or "very optimistic".  

This got me thinking back to those waves, and how much of what is happening right now may just be a cycle of events that are almost inevitable according to the general rules of economics, as opposed to how much can actually be materially influenced by policy.

In other words, is this more about businesses understanding whether to attack and go over, or duck and go under, the inevitable waves - than it is about trying to avoid them all together. 

At some point, if we want a society with an effective healthcare system, where people benefit from shorter waiting times, better social support, and our children inherit a lower national debt, the proverbial band-aid will need to be ripped off. It has to be paid for somehow. For me, measures outlined in the budget take steps in that direction. 

Unfortunately in the short term, there will inevitably be some businesses, especially those at the smaller end of the scale and in sectors such as hospitality and retail, facing much harder challenges as a result. 

Our energy and effort may be better served in accepting that we are now living in an uncertain world – just like those waves – a world where adapting and reading the warning signs are vitally important. 

If we look back at the last 5 years, our economy has been impacted by Brexit, Covid, and the recession in the last quarter of 2023 - as well as political uncertainty in the U.S and the potential of tariffs, a new government, and an overhaul of economic and tax policy, trussonomics – the list goes on. Uncertainty does seem to be the new certainty.

Like so many things in life, accepting hard truths is no easy task, and there should always be room for an abundance of optimism along the way. But for the SME market in the UK – perhaps now is the time to pivot the medium to long term strategy and see planning and damage mitigation come to the forefront, even when there doesn’t seem to be an immediate requirement   for it.

We have certainly seen an increase in directors and lenders coming forward for advice much earlier in the stressed/distressed cycle which in turn presents a lot more options including exit planning or refinancing and recapitalising. 

It remains to be seen whether stagflation will hit as hard as The Times is predicting – but in the meantime there is work that all stakeholders can start to engage in. Do you attack, or do you duck, those inevitable waves?